Holiday pay vs PTO

It’s important to understand the differences between holiday pay and paid time off (PTO), and how they affect your benefits package.

  • Holiday pay

  • PTO

  • Best practices

What is holiday pay?

Holiday pay refers to compensation you provide to your employees for the time they spend away from work on recognized public holidays. 

In the US, for instance, there are 11 paid federal holidays:

  1. New Year’s Day: January 1

  2. Martin Luther King’s Birthday: third Monday in January

  3. Washington’s Birthday: third Monday in February

  4. Memorial Day: last Monday in May

  5. Juneteenth National Independence Day: June 19

  6. Independence Day: July 4

  7. Labor Day: first Monday in September

  8. Columbus Day: second Monday in October

  9. Veterans Day: November 11

  10. Thanksgiving Day: fourth Thursday in November

  11. Christmas Day: December 25

State or local holidays, like Nevada Day or Cesar Chavez Day, may also qualify.

To see a full list of public holidays in other countries, check out our Country Explorer tool.

If employees work on an official holiday, they may be entitled to a premium pay rate on top of their normal wages, usually at either double or 1.5x the hourly rate.

Holiday pay is distinct from other forms of PTO, such as vacation days and sick leave. Employees can't freely choose when to use it; instead, it's tied to predetermined dates. In addition, holiday pay doesn’t accumulate like vacation time does. 

Benefits of holiday pay

Offering premium holiday pay:

  • Improves employee morale and loyalty

  • Allows for better operational planning since holiday dates are fixed

  • Demonstrates an appreciation for cultural diversity by offering religious holidays 

Although holiday pay is not a legal requirement everywhere, most employers do provide it.

Who is eligible for holiday pay?

Unless legally mandated, eligibility for holiday pay is at the employer’s discretion. Holiday pay policies often specify which workers qualify, based usually on their tenure or hours worked. For instance, an employee may be required to provide more than six months' worth of service before they earn holiday pay.

What is PTO?

PTO refers to a pool of paid days employees can use for any purpose, such as vacation, personal time, education, or something else.

In some countries, PTO also covers bereavement leave, jury duty, military leave, and sabbaticals. 

Unlike holiday pay, PTO isn't attached to any specific event. It provides flexibility since employees can use the time off however they choose, whenever they want (subject to the employer agreeing). 

In many countries, employees are legally entitled to a minimum number of PTO days per year. In places where they are not — such as most US states — employers offer PTO as a supplementary benefit. The amount of PTO days on offer can increase based on tenure or accruals, while it’s also possible to cash out unused or unwanted PTO.

PTO policies can differ drastically depending on the company. For example, some US companies exclude part-time staff, contractors, or new hires from taking PTO until they have completed an introductory period.

Benefits of PTO

If it’s not already legally required, here are some of the benefits of offering PTO to your employees:

  • It gives you greater flexibility in managing time-off requests since employees can use their PTO bank for any purpose

  • There is often no liability for paying out unused vacation time when employees leave the company since PTO policies often have "use it or lose it" clauses

  • It promotes a culture of trust and personal responsibility

Holiday pay and PTO best practices

Consider incorporating these best practices when offering holiday pay or PTO:

1. Establish a comprehensive policy

Make the policy easily accessible to employees. Post it on your company intranet and add it to your employee handbook or dedicated HR portal. Make sure that your employees read it carefully to avoid confusion.

2. Set clear boundaries

Outline when employees can and can’t take PTO. Address items like:

  • Number of vacation, sick, and personal days provided annually

  • How time off is accrued (front-loaded, earned over time, etc.)

  • Rollover, expiration, or cash-out policies for unused days

  • Eligibility rules (tenure requirements, job status, etc.)

  • Notice periods for time-off requests

3. Comply with the relevant laws

Research paid leave regulations in the areas in which you operate. Consider state, city, and industry-specific rules beyond federal requirements.

4. Grant holiday pay and PTO equitably to all eligible employees 

Avoid policies that discriminate based on job roles or other factors. 

5. Track holiday pay and PTO using an integrated HR system 

Ensure transparency by providing periodic updates on balances. Implement request and approval workflows to maintain operational continuity.

Expert advice
As an HR manager:
  • Align your holiday pay and PTO policies with your company values and industry benchmarks. Prioritize inclusivity by offering floating holidays for cultural/religious observances.

  • Encourage employees to use their PTO by setting usage expectations or minimum requirements.

  • Show support for employee work-life balance through manager training. Celebrate when employees take time off to rejuvenate.

  • Evaluate the pros and cons of a PTO bank combining sick, vacation, and personal time versus having separate buckets. PTO offers flexibility while separate policies provide structured time off.

  • Set clear guidelines if you’re exploring unlimited PTO. Lack of oversight risks underutilization or abuse. Provide benchmarks and require pre-approval.

  • Regularly gather employee feedback. Adjust your policies to meet the evolving needs of your diverse workforce and maintain employee satisfaction.

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